SAS “New” Business Model
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SAS “new” business model David Sörhammar Uppsala University Department of Business Studies Sweden [email protected] Anna Bengtson Uppsala University Keywords: dynamics, market change, marketing practice, SAS. Abstract In September 2005 SAS introduced a new business model. Where did the model come from and what influenced it? This paper’s focus is on the making of the model where we study the making of a business model as a dynamic process through time. In concrete terms, traces of today’s model can be found and examined from the SAS group’s embryonic attempts starting in 1946, through the financially good years during the 1980s, to the market re-regulation in contemporary time. During these years several changes have taken part both on the larger air travel market and in SAS´s market practice. We have separated SAS´s history into three era’s, the technological era, the businessman’s airlines era, and the “to serve Europe with air travel” era. Elaborating on the theoretical notion of mutuality between markets and market practice (Cf. Helgesson et. al., 2004), the impact of these practices and of the market infra structure at different points in time are described and their importance for the emergence of the business model discussed. Our findings show that the political efforts to de-regulate the European air travel markets did not automatically change all market practices and thus not the market. The process that followed the de-regulation can better be characterised as a translation process in which a changed market was created, based on an already established network of embedded material and immaterial items, such as booking systems, airplanes and perceptive frames, that had to be taken into consideration. Keywords: SAS, Markets, Market Practice Introduction “We must make sure to get rid of all un-necessary elements in our operations and in our products. We are striving for a simplification of our existence. I am completely convinced that the luxurious journeys by air in first class (…) are over or must come to an end under the pressure of the super crisis that has stroke us. (…) I imagine in a not to distant future well-filled aircrafts with all passengers in one class, tourist or economy class. At embarkation, everyone has had the possibility to bring with them a food box from a desk in the airport. The stewardesses that are to be found have their safety duties and are possibly responsible for serving refreshments.” Knut Hagrup, SAS president, 1975 The quotation above was written in 1975. Thirty years later, in the annual report of 2005, SAS describes a new business model, much in line with the vision that Hagrup presented. The new business model consists of three parts, aiming towards SAS´s commercial concept, towards their traffic system and towards cost cuttings, as illustrated in figure 1 below; The SAS Group’s new business model Commercial concepts Network/Traffic systems Cost adjustments ? Fare structure based on ? Traffic systems are ? Cost levels for the demand-based-one-way sized according to basic products in fares local demand and line with those of the ? Differentiated basic profitable transfer most efficient product traffic competitors on the ? Offerings that stimulate ? Dynamic and flexible same traffic flow additional sales and traffic planning ? Future transfer, upgrading of the basic distribution, in-flight, product on-ground, network ? Internet booking etc. products must be profitable Figure #1 SAS annual report 2005 SAS presents their new business model as a reaction against their “old” practice and as a clear break from the past. But is this “new” business model so radical and different from all earlier practice? The quotation by Hagrup gives us a hint that it might not be the case. This paper takes a closer look at the creation of SAS business model of 2005 from a historical perspective. Can we find any traces of today’s business model in the market practice at SAS thirty or even sixty years ago? Studying markets and market practice “To understand why marketing is such a fascinating economic and sociological activity, we have to first understand the fundamental reason why markets develop. Markets exist because we get better at doing things the more we do them (labour specialization) and we get less interested in consuming things the more we consume them (consumption satiation). Put labour specialization and consumption satiation together in any society of humans and markets and marketing will be spontaneously created.” Czinkota et. al., 2000, p. 5 The quotation above is taken from a text with the heading “How markets evolve” in a marketing textbook. It is quite interesting that the book in marketing starts out from the market concept since a perfect market is defined as one of several suppliers and buyers of a highly standardised product. All participants in this market have full access to all information and act rational based on the information, leaving price as the only visible parameter. Hence there is no room for marketing in such a market. However, questioning the assumption of highly standardised products, Czinkota et al (2000, p. 6) argue that opportunities exist in the marketplace as a result of consumer satiation: “Opportunities exist in the marketplace for new products that not only satisfy unmet consumer needs, but also provide consumers with alternate means of satisfying needs currently being met by existing products.” Looking at any empirical situation there are good reasons to question the existence of perfect markets; due to heterogeneity of products it might even be difficult to know who the suppliers and the customers are (from a very narrow perspective there might be just one or a few of each – whereas a broader product definition will give a large number of suppliers and customers connected to each other in a network like constellation). What we end up with are rather blurred markets that are much situation and time specific in nature, rather than a market. Despite this reasoning, the market phenomenon seems to be of importance. Many actors involved in business practice perform activities based on ideas about the context of their businesses, i.e. on ideas about the market. And it is these activities, performed in interaction among actors, which continuously construct and reconstruct “the market”. In this paper we try to elaborate on the theoretical notion of mutuality between markets and market practice further, using Kjellberg and Helgessons definition of 1 market practice as all activities that contribute in shaping markets, and their categorisation of market practices into three broad categories. These categories are: 1) exchange practices, activities involved in exchange of goods and services; 2) normalising practices, activities involved in forming normative expectations for actors and; 3) representational practices, activities that produce images of markets. The practices that are performed are linked to other practices through various translations1 (Latour, 1999) that produce the market. (Helgesson, et. al., 2004; Kjellberg & Helgesson, 2005) Considering actions, such as the focal practice here, i.e. the creation of a new business model at SAS, as both socially embedded (Granovetter, 1985) and inter-defined and materially embedded (Callon, 1998) in contexts, a holistic approach to the study object is needed. The creation of a business plan is in this paper understood as an interactive and emergent phenomenon, based on present market practice, on earlier practices, as well as on present market infra structure. We believe as well, that context can be grasped differently, and that the perception of relevant context, or market, by a certain market actor at a certain point in time will have an impact on its market practice, and thus on the creation of the business plan. There will thus be varying definitions of relevant market between actors and over time within actors, which makes creation processes of this kind both dynamic and multifaceted. How did we go about making the study, i.e. what was our practices? To grasp the mutuality between markets and marketing practice we conducted a processual case study. The SAS group’s business model of 2005 functioned as a focal point for the case. To capture the process of developing of the new business model the focus has also been put on the SAS context, or market, as it has been described by themselves in interviews, annual reports etc. at different times. We have separated SAS history into three era’s; the early technology driven years, the businessman’s airline years and the contemporary “to serve Europe with air travel” years. Data was primarily gathered from SAS annual reports, but also other data sources such as interviews and articles in daily papers have been used. The annual reports gave information not only on some of SAS´s market practice and on some relevant market data, but also and foremost, on how SAS perceived and / or presented their market at different points in time. The early, technologically driven, SAS years The first traces of SAS new business model can be found in the very embryonic phase of the company. The creation of SAS was an initiative from the Swedish governmental owned actor AB Aerotransport (ABA) who, at the time of the Second World War, wanted to create an airline with routes between Stockholm and New York. However, the Swedish government did not have the financial strength to build such an airline, and therefore decided to give a licence, or in governmental terms a concession, to the private owned actor Svensk Interkontinental Lufttrafik AB (SILA). The plan was to wait until the war was over and then become the first airline to operate intercontinental flights between the Scandinavia and the US. After the war a flight rout was scheduled, but the financial side of the operation became too expensive for SILA to handle.